The mere existence of “Second Chance” is interesting because it indicates to me that ebay has significant enough outtrade and settlement risk issues that they’re losing a significant number of sellers, so they’ve created Second Chance as a mechanism to help sellers better mitigate settlement risk. Unfortunately, they’ve tilted the balance in favor of unscrupulous sellers in the process.

Look at the risks of Shill Bidding from the seller’s perspective. If they get too greedy, they will exceed the limit of their bidders and wind up “winning” their own auction. This costs them whatever the listing fee on the item was and they still have to re-list (and re-pay the fee), doubling their transaction cost and hope that they don’t overbid the auction again.

Now, thanks to Second Chance, ebay has effectively provided a safeguard which mitigates the risk to a greedy seller of exceeding the buyer’s maximum price. The dishonest seller can now safely discover the real winning bidder’s limit without having to double their transaction fee to obtain the information.

The sad thing about this problem is that there is an easy solution. Just add some transparency to the whole process. This would allow bidders to decide if a seller had a higher outtrade rate than they were comfortable with. Allowing the buyer to make an informed decision about whether or not a seller seemed to have an unacceptably high rate of outtrades or Second Chances would introduce a more objective mechanism than the reputational parody called feedback.